Annuity Players Adopt Their Own Suitability Standards

“From our standpoint as the largest writer of fixed index annuities for 10 of the last 11 years, we actually embrace it,” he says. “We put in suitability in all 50 states prior to this model suitability act, so we were ahead of that curve. One of two things can happen: You can either get ahead of that curve, because you know that wave is coming, or you can wait for that wave to come and try to play catch up. We prefer the former versus the latter.”

Similarly, Matt Neuman, a vice president of marketing for Advisors Excel, a marketing organization based in Topeka, Kan., reports that his firm hired an in-house suitability and compliance officer in 2009. He concedes, however, that internalizing the suitability procedures can be painful at first.

“There are some growing pains to it, but in general the process has allowed our agents to get more business approved in a lot shorter period of time,” Neuman says. “It’s also allowed us, the FMO, to be the primary point of contact. That is a big deal for us. So I think the most progressive marketing agencies are already doing this regardless of whether a carrier is demanding it or not.”

Neuman predicts more states will adopt the NAIC model suitability act, which, in his view, will make the application process more uniform among the 50 states. Although most of the talk has focused on consumer protection, advisors who sell these products will benefit as well.

“It will provide the advisors out there with clear-cut guidelines on what’s suitable and what’s not,” Neuman says. “That’s the difficult part. I’m working with advisors in all 50 states and it’s very different in Pennsylvania versus Illinois versus California versus Texas. The carriers are at different levels on what they’ll accept and what they won’t. You can’t run a business unless you know the guidelines. It will make things a lot more clear cut.”

Financial advisor Lance Howard, founder and owner of two companies, Howard Financial and Insurance Services, Inc. and Howard Financial and Wealth Management, Inc., in Bakersfield, Calif., says that heightened regulatory oversight, while it does increase bureaucracy, nevertheless will have a beneficial effect on the industry.

“Suitability has gone from a one-page form to a four-page form and it continues to make our job harder,” Howard says. “Yet I believe that the rules they are making are protections for consumers because unscrupulous advisors won’t police themselves. It’s a shame.”

Having a suitability officer in place also makes the sales process run smoother, Howard says. “[If] we have ongoing contact with a suitability person and they are doing their job then I think we’ll all have more information on what’s suitable and what’s not,” he explains. “It will give everybody an opportunity before they even put in the business to make sure they are submitting suitable sales.”

Neuman notes that other carriers “highly recommend” but don’t require that an IMO have a suitability officer in place, and if a marketing organization markets a specific carrier’s product, sales go through that carrier’s suitability department. Neuman adds that, to his knowledge, Allianz is the first carrier to mandate a suitability officer be in the marketing organization’s office as requisite to join their Preferred platform.

Like Howard, Neuman asserts that streamlined and unified regulations and suitability procedures ultimately enable advisors to sellfor want of a better phrasemore suitable products to their clients.

“Hopefully, we’ll get to a point a couple years down the road [when] there is a lot more standard suitability requirements amongst carriers and states, there’s a lot more clear-cut guidelines and everybody plays by the same rules,” Neuman says. “That makes it a lot easier for the advisor to do their job and select the best product [for the client]”